MUMBAI: The Indian markets have corrected sharply and pared most of the gains of the FII-led spectacular rally. The profit booking, say analysts, has been mainly because market valuations were running ahead of the fundamentals and as investors were concerned of twin deficits ahead of the Budget.

However, the IT sector has largely remained unaffected to the current downtrend and has outperformed the benchmarks. The BSE IT Index has gained 1.79 per cent in last seven sessions compared to a 0.66 per cent decline in the Sensex during the same period. In last one month, the BSE IT Index has moved 4.82 per cent higher while the Sensex fell 3.64 per cent. At 12:20 pm, Infosys was at Rs 2,907.85, up 2.51 per cent, on the BSE. It touched a high of Rs 2,914.75 and a low of Rs 2,862.35 in trade today."I don't think there is a lot of room for the Indian equity markets to re-rate on valuations and therefore the focus has to be on fundamentals and stock picking. I do not expect that 2013 will be a straight line up for the equity markets in terms of producing returns. One has to be much more selective in 2013," said Punita Kumar Sinha, Managing Partner, Pacific Paradigm Advisors, to ET Now recently.

Investors wary of pick-up in economic growth back home have started investing in IT stocks following a positive FY14 outlook for the tech industry, say analysts.

According to a National Association of Software and Services Companies (Nasscom) report early this month, India's export growth outsourcing sector is likely to increase in FY14 on expectations of improving global economy.

As per the Nasscom report, the exports are expected to grow between 12 and 14 per cent in 2013-14 to as much as $87 billion as against the earlier expectation of 10.9 per cent.

The information technology and business process management (IT-BPM) industry is expected to add $12-15 billion incremental revenue. The local IT market is expected to grow at 13-15 per cent, driven by spends by the government and the banking, financial services and insurance (BFSI) sector.

"The commentary that had come from Nasscom is quite positive. They are expecting the total revenues to go up between 12 per cent and 14 per cent for FY 13-14 on the back of 10.2 per cent growth that they are expecting for FY 12-13. So a modest recovery which is underway in

United States of America, the largest market for these large cap IT companies, is clearly underpinning the sentiment," said Ajay Bodke, Head-Investment Strategist & Advisory, Prabhudas Lilladher, to ET Now.

"The performance of the IT sector in the quarter gone by also has been quite inspiring. If we look at our estimates, we were expecting total revenue for IT companies put together to go by 15.8 per cent whereas actual growth has been around 17 per cent on the top line and on the bottom line as against 11 per cent growth expected for the IT sector, the growth has been around 15 per cent. The recent rally in the IT space has been led by Infosys, which positively surprised the street by announcing better-than-expected results. The stock has gained 4.77 per cent in last five sessions and gained 3.35 per cent in last one month," he said.

"Infosys is operating at a utilisation rate of around 73 per cent, which means that it can easily increase that utilisation rate by around 5 per cent to 7 per cent which will have a significant impact on the bottom line. There is a certain amount of pragmatism also that has creped into the management that they cannot be holding on to their high pricing premium. Over the last two quarters there is great amount of flexibility on their go to market strategy which is a starting to show deal flows. So all in all it is a good time to be investing in Infosys under the current circumstances," said P PhaniSekhar, Fund Manager-PMS, Angel Broking, to ET Now.

Recently, CLSA maintained its outperform rating on Infosys with a price target of Rs 3,100 after meeting with the management. According to the brokerage, the company is undergoing a major cultural shift with significant changes, which is likely to lead to a pick-up in revenue trajectory at expense of some margins at least in the immediate term.

Technical analysts are advising to go long on Infosys and other IT stocks in the near term.

Infosys: The IT sector has been showing good strength in last three months and Infosys has formed two major gaps on 11 and 14 January. After that, the stock has never filled those gaps and has been consolidating for the past 6 weeks with rising price.

On downside, the first gap-up levels can be seen a major support levels which comes around Rs 2,720 levels. One can expect prices to move till Rs 2,990-3,050 levels in the next 3-4 weeks.